Landlords in markets that boomed when the real estate sector was hot during the COVID-19 pandemic are now being forced to cut prices due to falling demand, according to data released Monday by Redfin.
In the United States, 21% of home sellers lowered their asking prices in July – the highest share since Redfin started tracking the metric in 2012, according to the firm. Shares of homes with July price declines from a year ago rose in 94 of the 97 metro areas surveyed.
The trend was at its worst in “pandemic homebuying boomtowns” like Boise, Idaho, where 69.7% of homes for sale slashed listing prices in July. Other overheated markets include Denver, with 58% price declines, and Salt Lake City, with a 54.8% share of declines.
“Sellers and individual home builders both quickly lowered their prices at the start of the summer, mainly because they had unrealistic price and time expectations,” said Shauna Pendleton, agent of Redfin based in Boise.
“They priced too high because their neighbor’s house sold for an exorbitant price a few months ago, and expected to receive several offers the first weekend because they had heard stories about it,” Pendleton added.
The US housing market has cooled considerably in recent months, with the Federal Reserve tightening monetary policy to combat runaway inflation. Mortgage rates jumped above 5%, nearly double what they were in January.
Soaring mortgage rates have deepened an affordability crisis for would-be buyers struggling with the effects of inflation on their budgets as well as sky-high house prices. The trend has undermined demand and left sellers with little choice but to lower their expectations.
Other metro areas with a share of home price reductions above 50% included Tacoma, Washington; Tampa, Florida; Sacramento, California; Indianapolis and Phoenix, according to Redfin.
Overall home sales fell 19.3% in July from a year earlier, according to data from Redfin. Activity hit its lowest point since the start of the COVID-19 pandemic. Sales have fallen for six consecutive months.
“Some potential buyers were sidelined because they were out of the market; others were wary of potential drops in home value in the near future,” the company said in a statement.
As reported by The PostIan Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients last week that the market drop is “still a long way off the bottom, especially for prices.”
“The bottom is still a long way off, given the extent to which demand has been crushed by rising rates; the monthly mortgage payment required for a new buyer of an existing single-family home is no longer increasing, but was still up 51% year-over-year in July,” Shepherdson said in a note to clients.
Fitch Financial Rating Agency also warned of an impending decline, predicting that prices could possibly fall by as much as 15% in the event of a major real estate crisis.